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Marketplace Morality Is Not About Being Nice

It’s the beauty part of free-market capitalism: To successfully pursue happiness, you must help others do likewise. That simple, universal equation is the root of capitalism’s essential morality and of its wonder-working power to create wealth and opportunity. If you are unable or unwilling to supply a valuable product or service or hour of labor, then you eventually will fail. In that sense, the long-term incentives of every seller are aligned with those of every buyer in a competitive marketplace.

There is no way Goldman Sachs or JP Morgan or Morgan Stanley -- or Apple or FedEx or your local plumber -- can be successful over the long haul without such marketplace morality. It's not about being nice guys. As Greg Smith’s resignation letter put it, “If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are. … Without clients you will not make money. In fact, you will not exist.”

Long-term incentives of every seller are aligned with those of every buyer.

Such were the harsh lessons of the 2007-2009 global financial crisis. When trust evaporates – particularly trust that a lender will promptly get his money back as promised -- so do businesses. And to the extent that some bit of Wall Street now lives in a pocket universe operating according to a different set of financial physics, it is because government has created and maintained an artificial “too big to fail” bubble around its largest players.

Some have suggested that investment banks, at least, went off track when they morphed from partnerships into publicly traded companies, a structural transformation that altered management incentives. Bankers now focus on the next quarter rather than the next 20 quarters, the quick trade rather than relationship building. And perhaps Washington should mandate a reversion. But the biggest benefit would be a change in size rather than structure. No longer too big to fail, the capitalist morality generated by competition and the risk of failure would again be fully operative. And Wall Street would again be firmly focused on its core competency of efficiently allocating capital to American business.